Nostra Terra: Significant Potential of White Buffalo Acquisition

Nostra Terra Oil and Gas Company plc
(“Nostra Terra” or the “Company”)

Acquisition of operated interest in White Buffalo Prospect

Nostra Terra (AIM:NTOG), the oil and gas exploration and production company
with a growing portfolio of assets in the USA, is pleased to announce the
acquisition of a 100% working interest in 6,100 net mineral acres in the White
Buffalo Prospect from Ward Petroleum Corporation (“Ward”) (the “Acquisition”).
The Prospect is located in the Big Horn Basin of Wyoming and comprises several
targets including the proven Phosphoria Formation.

Acquisition Highlights

– Nostra Terra now owns, controls and operates a 100% Working Interest in 6,100
net acres

– Up to 20 potential locations for horizontal wells with 4,500 foot laterals,
are possible with total recoverable potential of up to 13MMbo

– PV10 for a horizontal well (4,500 ft lateral) in the Phosphoria Formation is
estimated at US$5.9 million (best case) to US$11.8 million (high case)

– Potential mean project value of US$118 million up to US$236 million in total
based on 20 horizontal wells

– Acquisition consideration of approximately US$1.2 million which includes the
acreage, geological and geophysical work and associated legal and other costs

– The Acquisition has been funded by existing cash reserves and an existing
debt facility

– Leasing of the Acquisition acreage is completed, with additional potential
for expansion

– The Phosphoria Formation has a history of prolific production and there is
additional potential from the Frontier and Muddy Formations

– SM Energy Co. has spudded its first horizontal Phosphoria well and Devon
Energy Corp. has permitted two wells in the immediate vicinity

Rationale for the transaction

Nostra Terra has for some time sought to acquire a sizable prospect in basins
with an established history of oil production but that has not yet been fully
exploited by modern horizontal drilling techniques. By engaging in
exploration, the Company benefits from much lower lease acquisition costs
whilst gaining exposure to relatively low risk prospective resources and near
term production potential. As demonstrated at the Company’s Chisholm Trail
acreage, the value and cost of lease bonuses increases significantly with the
commencement of horizontal production in the area, especially in emergent
Resource Plays.

The directors believe that White Buffalo fulfills this key criteria and the
Acquisition significantly increases the potential scope of Nostra Terra’s
operations. The 6,100-acre leasehold establishes a sizable block within a
non-contiguous area of over 12,000 acres. Importantly, with this project,
Nostra Terra has become the operator of significant assets and will have much
greater control of its own destiny.

By comparison, the Company’s existing Chisholm Trail Prospect in Oklahoma
comprises approximately 1,500 non-contiguous acres, roughly 300 mineral acres
net to Nostra’s 20% interest. These assets are under the control of various
operators.

White Buffalo, therefore, provides a potential resource roughly 20 times the
size of the successful Chisholm Trail Prospect, providing Nostra Terra with
considerable flexibility to bring in partners, if desired, and maintain
significant upside potential.

Acquisition details

The purchase consideration for the prospect is US$1.2 million. In return, the
Company has acquired a potential resource play that is drill-ready with
assignments to over 450 individual leases. The average lease still has with
more than 4.5 years remaining in primary term, followed with options to
extend. Included in the purchase consideration are the costs incurred by Ward
for lease brokerage, legal costs, title work, filings, geologic and geophysical
interpretation and other overheads incurred over the period required to
generate the concept, lease the core area and deliver the final package to
Nostra Terra. The effect of the Acquisition on the Company’s current net debt
position is an increase of approximately £600,000. Additional cash reserves
have been allocated to fund further acquisitions.

Significant operators entering the region

Well-respected industry peers such as Devon Energy Corp (NYSE:DVN) and SM
Energy Co. (NYSE:SM) have each acquired significant leasehold positions and
will be testing and evaluating their own horizontal wells in the Phosphoria
formation in the near future.

Independent evaluation of assets

Based on technical analysis using analogous nearby wells, the potential
Original Oil in Place (OOIP) within the newly acquired 6,100 acres has been
estimated to be 74.5 MMbo, or 7.8 MMbo per section (640 acres), by Haas
Petroleum Engineering Services, Inc. (“HPESI”). The net Prospective Resources,
future net income (“FNI”) and PV10 on a high, best and low case basis for each
of a long lateral horizontal development (10,000ft lateral), standard
horizontal development (4,500ft lateral) and vertical development have been
estimated by HPESI as follows:

Net FNI PV10
Resources (US$) (US$)
BO
10,000 ft lateral High case 963,750 49,345,420 24,481,910
Best case 630,960 28,114,100 12,816,340
Low case 377,380 11,935,800 3,928,080
4,500 ft lateral High case 484,210 24,271,680 11,814,840
Best case 317,130 13,612,360 5,912,530
Low case 190,100 5,508,200 1,456,820
Vertical High case 146,620 5,357,390 2,545,110
Best case 120,210 3,839,130 1,701,880
Low case 85,950 1,934,430 631,930

Source: Haas Petroleum Engineering Services Inc. assessment of net Prospective
Resources. Type decline curves were extracted from approximately 200 wells
using decline curve analysis. Prospective resources do take into account
constraints on profitability, such as royalties, operating expenses and future
commodity prices.

As many as 75 conventional vertical wells could be drilled on the current
acreage and the most likely economic recovery is projected to be 9 million
barrels (PV10 US$127 million) by this at method.

The application of horizontal drilling and hydraulic fracturing is known to
improve ultimate recovery and estimates indicate that by drilling 20 horizontal
(4,500ft lateral) wells approximately 6.3 million barrels of oil (PV10 US$118
million) could be recovered from the leasehold area. Of the wells examined in
the study, of the few vertical wells that were lightly fracced, 20% higher EURs
were projected than for wells with the typical acid treatment. The high case
for 4,500 ft wells is 9.6million barrels (PV10 US$236 million).

Regional geology and prospectivity

The White Buffalo Prospect is close to two significant fields producing from
the Phosphoria Formation, the Manderson Field (discovered in 1951) and the
Cottonwood Creek Field (discovered in 1953). Each is a
structural/stratigraphic trap producing from multiple horizons. Cottonwood
Creek alone has produced 60 MMbo and 67 BCf from the Phosphoria Formation, the
largest stratigraphic oil accumulation in the Big Horn Basin. In addition, the
Muddy and Frontier Formations, above the Phosphoria, have also been productive
in the area. Horizontal drilling and new multi-stage frac technology appear to
be well suited for the efficient recovery of hydrocarbons from this dense,
stratified, compartmentalize dolomite. The White Buffalo Prospect area is
approximately 90 square miles that appear to be geologically prospective.

The Phosphoria Formation is both source rock and reservoir. It is the source
for the Permian Tensleep, the Permian Minnelusa and to the Leo and the Weber
Sandstone in Colorado. Historical production was dependent on vertical
wellbores intersecting natural fractures to produce economic volumes of
hydrocarbons. Just as in the Barnett Shale of Texas, wells drilling through
the Phosphoria Formation almost always encountered shows of oil and cores
generally were low porosity and permeability. Many drill stem tests only
recovered small volumes of drilling mud and slight shows of oil and gas.

The Big Horn Basin has produced 2.86 billion barrels of oil and 2.2 trillion
cubic feet of gas since the first discoveries over 100 years ago, according to
the United States Department Interior, 2010. The United States Geological
Survey (2008) estimates that as much as 110 MMbo remain to be recovered from
the Phosphoria Formation alone in the Big Horn Basin by “Conventional” means,
which is usually taken to mean vertical wells. There are no estimates of
basin-wide recovery through “Unconventional” means, which is usually taken to
mean horizontally drilled and fracced wells. In the prospect area, one
horizontal well was completed by Union Pacific in the 1990s in an effort to
encounter multiple fractures. Cumulative production to date from the well is
100Mbl. However, the additional costs of the directional work at the time did
not justify further such wells. As of today, only one horizontal well with
plans for multi-stage stimulation has been permitted targeting the Phosphoria
Formation, which was spudded by SM Energy on 15 August 2014 and is currently
drilling.

Matt Lofgran, Chief Executive Officer of Nostra Terra, commented:

“Our production portfolio across Oklahoma, Texas and Colorado continues to grow
and generate cash, however our focus has always been to acquire a significantly
sized prospect which we control and which provides substantial potential
upside, not just in economics but a large number of drilling locations. Two
large, respected oil companies in the USA, Devon Energy and SM Energy, have
recently become active in the area, further validating the Acquisition.

The resources we’re targeting currently range from US$118 million to US$236
million on PV10 based on horizontal drilling and fraccing of 4,500 ft lateral
section. This should demonstrate to current and prospective shareholders the
significant potential increase in scale for the Company.”

Advertisements
Standard

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s